ECB chief Lagarde warns uncertainty is back as Trump targets Europe

European Central Bank (ECB) President Christine Lagarde says uncertainty is back because of the latest tariff threats from U.S. President Donald Trump. Speaking to CNN at the World Economic Forum in Davos, she warned that these trade tensions are hurting trust between the U.S. and Europe.

Companies in both regions are now trying to figure out how these new tariff threats might affect their business and the economy. Lagarde stated that the uncertainty caused by the tariffs is more hurtful than the tariffs themselves.

ECB warns trade uncertainty could slow investment and economic growth

Christine Lagarde said that the biggest concern at the moment was not just the risk of new tariffs, but the uncertainty about what might happen. If companies, investors, and markets do not know what will happen next, they will probably delay plans to invest, hire, or adopt trade policies. This could slow economic growth, according to the ECB.

Trade serves as a bridge between Europe and the United States of America. Many European companies operate in the U.S., and many American companies do the same in Europe. 

On the economic side, abrupt changes in tariffs threaten to confuse businesses that depend on stable trade rules and pose risks. This is a pressing concern for the ECB, as companies begin cutting back on spending and investment, which may slow the European economy.

Indeed, interest rates have been on hold since June, and neither investors nor economists expect further steps for now. Bank of France Governor Francois Villeroy de Galhau told reporters earlier Tuesday that any new tariffs must be assessed, but added that he expects their influence on prices to be muted.

International trade uncertainty can also impact inflation – the rate at which prices climb. If tariffs increase the cost of imported goods, this can drive up prices. But since Europe imports many products from the U.S., those sudden tariff increases could make it even harder for the ECB to meet the goal of stable prices. 

Trump’s potential action against European countries could threaten the ECB’s benign view of inflation and economic activity in the coming years. Although the euro zone has shown resilience to growing protectionism so far, officials have continuously highlighted that risks remain elevated.

Lagarde urges U.S. and Europe to protect trade ties 

Lagarde said that the U.S. and Europe have strong trade ties. For many years, they have bought and sold goods from each other, invested in each other’s businesses, and created jobs through cooperation.

She explained that it is not “good business policy” to risk these trade links. Lagarde encouraged leaders in both regions to carefully consider potential outcomes before making decisions.

Lagarde shared these views in an interview aired on Tuesday at the World Economic Forum in Davos, Switzerland. This event brings together world leaders, businesspeople, and experts to discuss major global issues. This year, trade tensions were one of the main topics.

In her interview, Lagarde spoke directly about the type of trade actions Trump has been suggesting. Trump returned to White House, wielding significant influence in U.S. politics, and continues to impose higher tariffs on European and other foreign goods.

When Lagarde said this is a “movie we’ve seen before,” she meant that Europe has faced similar trade disputes before.